Eurobonds Flashcards
What is a Eurobond
Type of bond issued and traded outside jurisdiction of the country whose currency the bond is denominated
Traded internationally/ global markets
Issued in major currencies
Unsecured bonds
Debt instruments
Bearer like characteristics/ traded anonymously
No jurisdiction so no restrictions from that currency
Naming of Eurobonds
US = Eurodollar
UK = Eurosterling
Jap = Euroyen
Characteristics
Fixed or floating coupons
Bear characteristics = no public register / holdings recorded by clearers agents but not available to gov or tax
OTC (no central exchange)
Bespoke - tailored to country reg regime
Redeemable @ maturity
Possible for principal repaid 1 currency and coupons In another
Listed REI / marketable
Country bond denominated in doesn’t have any controls over it
Long term(5-10 Years usually)
Offered Institutional and individuals alike in primary and secondary markets
Reasons why issued
Raise capital international markets
Unable to obtain finance from domestic currency/ country
Issuer can select currency more stable than domestic / favourable tax regimes or less reg requirements
Fixed or floating coupons = flexibility
Finance emerging markets/ development economies
Anonymity of owners/ reduce admin burden
Fund overseas investments
How are they issued
Listed on REI (regulated)
Issued primary as new securities and executed placing
Advisors determine process and timescales however trading cannot occur until admitted to listing and trading on exchange approved
Accounts maintained by clearer’s (coupons credited to account and additional purchases debited)
Eurobonds have Nominal amount, maturity date and coupons paid gross
Tax liabilities of holder
Min investment required (US = 500,000)
Outline regulation of Eurobonds
International Capital Market Association (ICMA)
Self reg org provide rules and reg on issuance and trading
FCA unable to regulate outside UK but financial entities invoked in issues are
Participants of Eurobond Market
Issuer
- party raising finance for specific purpose or multi purposes (cap projects or refinancing)
- look raise in international markets as unable to do at home
- issuers are large international corps and banks with higher credit ratings
Purchases
- investors/ holders
- party that buys the bond from issuer through intermediary in pri or OTC in sec
- individuals seeking LT secure finance
Intermediaries;
- lead manager
- advisors
- banks
Outline roles of intermediaries
Lead manager
- issuer approaches investment bank fo manage issue through placing
- join with other banks to form management group (negotiate t/c)
- power/ responsibilities to make issue/ can advise (usually delegate)
Advisors
- experienced agents determine process and timescale
- legal/ law firms oversea listing requirements
Banks
-ensure funds flow from issuer to holder/ payment redemption and coupons throughout life of Eurobond
Outline additional points to Eurobonds
Over 75% deals executed in London
Prices change with int rates and currency movements
Settlement T+3 days through clearing houses (record holdings)
Only offered institutional so listing requirements less rigid than other debt secured (Corp bonds)
